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EE460_Thai_economy_note.md

Professor Bhanupong Nidhiprabha bhanupong.460@gmail.com

  • be moodle code 3527

lecture 1: Japan and Siam's develop history 0814

  • similarity

    • forced to open trade
      • 1859 japan (Meiji). Nagasaki is japan's only door to world trade in 1571 castella, tempura (from portugal)

  • difference

    • Japan

      • industralization Japan
      • progressive middle class (samurai)
      • Sent 6000~ students
      • emphsize science and engineering
      • initial export raw silk, tea, and marine products, later change to manufactured goods
      • less land supply
      • better monetary system
      • abundant labor
      • unilineal iye system
      • Meiji restoration redistribute income and oppotunity
      • get privite sector to be involved by transfer the factories

    • 1855 siam (King chulalongkorn)

      • Ayutthaya: foreigners accounts for quarter of residents. export forest products
      • red seal ship trade: government trading ships
      • 'Yamada Nagamasa': Japanese who becomes officer in Siam
      • King Prasart Thong 1629-1656 made royal monopoly trade
      • King Narai 1656-1688
      • primary product oriented rice, teak, tin, 'rubber'
      • history
        • old enemy burma disappeared but french was getting aggresvie from east colonial.
      • watershed: Sandwitch's bowring treaty 1855 (King Mongkut): british trade freely; 3% of all things except gold bullion and oppium; siam gov keep the right on prohibit export salt, rice, fish to keep these necessities price low
      • other countries follow the pattern
      • the export item didnt change until 1960 (top 3 : rice, tin, teak)
        • removal forest make rice produce more productive
      • abundant supply of land make industrilzation less attractive
      • low emphasis on infrastructure and edu
      • fatalistic middle class
      • 1850-1950 GNP barely change

  • 1950 Siam

    • have high imcome elasticity for import
    • have export surplus
    • bilateral family system

  • Stolper-samuelson thm: rise in the relative eprice of a good lead to rise in return to that factor which used most intensively

  • Corn law debate: profit of landlord vs consumers

  • factors of growth capital

    • geography, trade
    • institution (rent seeking, corruption, law)
    • natural resource
    • human capital
    • productivity

reading: Siam and Japan 1850-1914

  • comapare the develop history from Japan to other countries
  • center-periphery theory: Dependency theory is the notion that resources flow from a "periphery" of poor and underdeveloped states to a "core" of wealthy states, enriching the latter at the expense of the former.
  • corvee is a form of unpaid, unfree labour, which is intermittent in nature and which lasts limited periods of time
  • tokugawa
  • Regent is a person appointed to govern a state because the monarch is a minor, is absent or is incapacitated.
  • samurai level becomes businessman

lecture 2_growth stretagy

  • growth strategies

    • growth is of political, economic, social transformation
    • rule of 72: growth rate of x percent would double GDP in 72/x years
    • the denmark experience: 2% but steady for 100 years
    • middle income trap

  • develop models

    • Alex: state intervention is needed
    • Gershcenlron (Russian): more backwardness needs more intervention
      • apply capital intensive rather than labor intensive
    • Lewis (travelled thailand): dual economy, surplus labor
      • agricultural sector dont maximize profit while industrial sector do
      • Lewis truning point: when a constant low wage rate is no more available, need to go more technology
    • Rosenstein: the big push theory
      • heavy infrastructure is need to get up
      • gov makes crowd in investment
    • Raul Prebisch (latiin american's Keynes)
      • Singer and Prebisch hypothesis: demand elastiticy of income is higher in menufacturing goods than agriculture goods
    • Rostow: 5 stages
      • old, pre-takeoff, takeoff,
    • Akamatsu (flying geese): dynamic(shifting) comparative advantage

  • thailand's plan

    1. import institute
    2. ...
    3. sufficient economy

  • sources of happiness

    • Richard Layard: once food is guaranteed, happier is not easy
      • trust
      • commuity
      • divorce
      • unemployment
      • religious
      • quality of gov

  • why nation fail (Acemoglu)

    • extractive vs inclusive institution

  • homework

    • review question
    • reading: review article of why nation fail
      • Acemoglu and Robinson's view on develpoment:
        1. political and economic development
        2. institution are product of experience and power group's willing
        • exmaple
          • England around Gloorious Revolution 1688
          • North and South America influenced by methods of colonization
          • Russia provides no incentive for communist population so could not long time exist
          • China broden successfully its market economics w/o shake its government; "creative destruction that sustain productivity will not take place"
      • alternative theores that defied by Acemoglu
        • geography: countries in same region could have different result
        • culture: across the boarder made different results (US/mexico, east west germany)
        • economic ignorance: only apply superficial market tools without political side change are shown useless among world bank and IMF examples
      • the point of the reviewer
        • AR approach is hard to go quantative analysis

lecure 3: Macroeconomics perspective on thai econ 1961-1990

  • multiple exchange rate system: in order to keep price of rice low in Thailand

    • at the same time ppl get incentive to smuggle rice outside thailand

  • MV=PT, where M = Money Supply, V= Velocity of circulation, P= Price Level and T = Transactions

    • V increase in hyperinfaltion situations. It then increse money further by anticipation

  • in hyperinflation, nominal interest rate doesn't matter.

  • ABC(argentina, brazil, chile) countries encountered hyperinflation

  • Thai baht currency

    • stable from 1948-1981
    • 1981-1987 devaluation (policy devaluation to make up trade defecit)
    • 1997 huge devaluation

  • C/Y(perpensity of consume) falls when Y raise

    • gov spending multiplier = (1-b)^-1 decrease as well

  • export-led growth hypothesis

    • competetion from bigger market available
    • allows scale economies of scale
    • comparative advantage
    • utilize labor surplus

  • reading: asia raising thailand by lecturer; about the rapid growh and low inflation rate in 1961-1990 by thailand, 1997 asian financial crisis, 2007 global economic recession

    • stable growth 60-90
      • 7% GDP growth and 2% inflation; no trade-off between growth and inflatin was observed
      • brief periods of oil shocks and currency appreciation dragged the growth
      • trade deficit occured after 1978, a need for adjusting the fixed FOREX rate system

  • reading

    • Hausman: correlation between growth and political change and currency depreciation
    • compare 1997 and 2007
      • 1997 asian financial crisis
        • investment and consumption dive
      • 2007 global ecnomic crisis
        • more fiscal stimulus
      • 2006 coup
      • 2014 coup
    • conclusion
      • export and domestic growth can be employed at the same time
      • fiscal, monetary and exchange rate policy should be consistent
      • automatic fiscal stabilizers: gov expenditure is less elastic to ouput than revenue
      • unstable political situation threatens long term investment

lecure 4 23AUG_Macroeconomics perspective on thai econ 1991-2005

  • Macroeconomics perspective on thai econ 1961-1990 (cont)
    • since 1974 thailand's Terms of trade goes down
    • conservative fiscal policy: debt/GDP goes up to35% at 1986 then drop down to 15% level
  • no class on Sep 11, makeup course due to announce
  • resillience of thai economy 1990-2005
  • imbalanced adjusted growth
  • trade-off between current account and grwoth exist
    • when rich people spend more on import
  • food is still counts major factor in thailand's CPI
  • oil price didn't make too much CPI variations
  • secondary school enrolment at 1989 is just 28%
  • short term loan is highly fluctuate

lecture 5 aug28 coping 1998 crisis (v-shaped recovery happened)

  • root of crisis: too much hot money caused inflation (debt inflaion)
    • capital flows are mainly loans (90-96 at ~60%), compared to ~15% at 1999-2009
    • FDI rising after the crisis because cheaper prices
  • the recovery
    • strong recovery after the currency deflation
  • lessons from the crisis
    • floating exchange rate
  • underground economy
  • service sector growth is correelates with menufacturing, but none with agriculture.
  • reading: economic crisis and the debt-deflation episode (baht floated from July 1997 and later fell by 56%)
    • origin, background: unsustainable fixed rate regime accompanied by relax balance control
      • relaxed foreign capital control from 1990~1995
      • short term loan funded unproductive investment
      • fixed rate cover the risk of exchage rate change for local financial institution
      • inadequate regulations on risk control
      • financial crisis and currency crisis are mutually casuation
      • speculation attack
    • cause of export slowdown 1996 to US japan singapore
      • exchange appreciation relative to yen
      • recession in JP
      • global economic slowdown
    • contration effect of devaluation (in investment and consumption)
    • expectaion of income worse because of uncertainty
    • unfamiliar floating exchange rate for the traders
    • debt deflation in thailand
      • over indebt company faces burden with contracted liquidity, worse if it is in dollar term
    • after crisis development
      • no downward wage rigidity in menufactuing and financial sector
      • decresing interest rate gap from int'l market, increasing FDI, stabling baht, decreasing short term loan suggest the recovery

Aug30_L6_premature liberalization and macroeconomic policy after AFC

  • about politics
  • Capital control relaxation undertaken when bank supervision and financial regulations were not sufficiently stringent led to over- borrowing and inefficient lending (partially result in asset bubble).
  • ST loan to federal reserve ratio and import to federal reserve ratio are both important of health of a currency
  • capital flow is a function of interest rate difference between countries
  • 14.1 billion bailout from IMF, and asked the bailed countries to run budget surplus, which reckoned wrong policy by Stiglitz
  • PC curve exist in 1992-2014
  • reading
    • File Premature liberalization
      • trade liberalization - lower tax and tariff since 1980
      • interest rate liberalization
        • financial deepening could be assessed by bank credit to GDP ratio
        • at the stage when bond and equity market also emerge so bank is not that important as before
        • when the rate ceiling is remove, there is no rate immediate surpass that level but since then the rate become more sensitive to foreign rate
        • no new bank before the crisis, though
      • capital account liberalization since 1990 (important role on Bangkok International Banking Facilities)
        • equity maket, mutual fund
        • BIBF established in 1993
          • tax inicitives to attract foreign funds
          • lots of out-in lendings target on thailand's higher investment return, with amount ~15% domestic credit
          • money flow into nontraded sector, which worsen export
        • regulation came too late after the relaxation
        • short term borrowing dominate the scene showed the vulnerability
      • peg exchage rate not sustainable
    • File Macroeconomic policy after July 1997
      • background: 1999 the economy seems out of the bottom from 1997 crisis, but global economic downturn appeared at 2001
      • the stats

        • manufactured output v-shaped

        • BOT rate hike to 23.4 to avoid capital flight

        • consumption and investment contracted while export expand (due to the currency depreciation)

      • exchange rate policy
      • fiscal policy: gov expenditure cut much at the crisis and didnt increase much before Takshin
      • monetary policy
        • put focus on GDP and unemploument not inflation
        • unable to control long term rate
      • conclusion:
        • inflation inertia exist while labor market is quite flexiable, philip curve exist
        • BOT's rate hike to protect baht when US rate drop is a bad policy in that it fail when currency should not be that strong

Sep04_L7_Buffeting by the Unholy Trinity Thailand’s Military Coups

  • Dec 2003 avian influenza, recovery at ~2004
    • gov tried to cover up initially
  • Dec 2004 tsunami
  • 2005 oil shock: biggest impact in economic terms among the three
    • subsidy in diesel could be seen as beef for the election
  • no coup between 1991 and 2005
  • 2006 coup
    • defense budget rise while health and agriculture budget drop
  • 2014 coup
  • after coup the consumption drops, possibly caused by lower life time expectation
  • health capital (grossman1972)
    • endowed but could be made better or worse by own effort
  • reading
    • Buffeting by the unholy trinity
      • fixed price and cover up scandal is costly; transparancy is the way to go in order to build consumer confidence and private-public sector cooperation
    • FileThe Thai economy after the 2006 coup
      • touriam industry(~6% GDP) hit
      • boom from 1990-1996 bust from 1997-2006
      • after the coup consumption and investment drop
      • capital control
        • tried, panicked, reverted
        • BOT tried to control the appreciating baht
        • lead to gap between onshore and offshore exchange rate
        • tried to issue bonds in order to sterize

Sep06_L8_global financial crisis2008 (cause, consequence, lesson)

  • trasmit channel to the local economy: trade and financial capital
  • cause: under market value rate of subprime mortgage loan
  • CDO(Colletral ...) is like sausage:
    • bad things mixed together
    • looks OK from the outside
    • hard to displine
  • CDS(credit degault swap) is usually sold with CDO
  • asset boom often comes after credit boom
  • Thailnd's exposure to CDO is little (~100M baht)
  • Thailand showed a stable gap between lending and saving, imply a robust banking sector
  • export had a v shape recovery because booming asia(China and India)
  • Minsky meltdown: the point that divide finicial robust and fragility;
    • displacement: new things emerge
    • boom
    • euphoria
    • profit taking (for specific party)
    • panic
  • reading
    • The world has not learned the lessons of the financial crisis
      • finicial crisis will return cuz hard to judge the risk
      • the improvement in the system
        • more equity needed
        • regulated pay policy
        • safer derivative market
      • some bad
        • stagnation fed populism
        • property related loaned still preferred by policy makers
        • euro structure cannot help much to the troubling country

Sep13_L9_GFC recovery

  • 2007-2013 seen a decoupling theory when China leads another regional economic role
  • export and import stagnated in thailand
  • Austrian Business Cycle Theory
    • views business cycles as the consequence of excessive growth in bank credit, due to artificially low interest rates set by a central bank
    • could explain the thai economy around 2007
    • 4 stages: trough, expansion or booming, peak, and contraction or recession.
    • believes that business cycle is a consequence of government manipulation of money supply and interest rate.
  • business sentiment generally not great since 2007
    • rule of laws correlated to sentiment
  • durable consumption is more related to expected life time income
  • BOT's credit channel tool more efficient than rate channel, because the rate market is not efficient enough compared to developed country
  • in mundell fleming model, monetary policy weaken in floating exchange than fixed exchange system
  • reading:

    • The Hard Road Ahead for Thailand’s Economic Recovery

      • how to restore confidence in 2009 recession
      • Thailand financial sector is stronger after 1997
      • 1997 is about worsen local consumption and investment, 2009 is about worsen export
      • tourism accounts ~6% GDP

    • Effectiveness of Thailand’s Macroeconomic Policy Response to the Global Financial Crisis

      • macro policy to 2009 crisis
        • fiscal policy less effective than monetary
        • tax reduction better than gov spending
        • undervalued exchange rate doesnt help
      • examine private sector confidence

Sep18_L10_agri_wont be in midterm

  • economic structure

    • usually less agriculture share as GDP grows
    • year 1979 menufacture share of GDP exceed agriculture
    • labor share in menufacturing stay flat while service sector growing
    • 30% of labor works in agri, maybe a agriculture trap exist:
      • agriculture growth lower than GDP growth
      • vietnam's land yield is better than thailand (possibly because water availability)
      • agriculture productivity lower than menufacturing
      • (capital/labor) in agri sector lower than menufacturing (compare US, 6 times bigger in agri than in menufacturing)
    • could have policy related to nonfarm input in farming includes credits, policy

  • Harris-todaro development 2 sector model:

    • real wages are higher in urban region
    • possibly unemploy
    • expected higher income in the future

  • reading: Agriculture and the wealth of nations

    • increase agriculture productivity makes the economic transfer more smooth
    • year 1900, traditional country still have ~80% works in rural area and works in agriculture while early insustralized countries ~50%
      • ppl live 10 years longer when live in rural area
    • farmer's response to incentive, constrainted by not land but knowledge and research

  • Question: the wage gap between agri and others is widening (also in constructuring and menufacturing), why the labor not changing job? (pp. 28)

    • lagging convergence?
    • barrier? subsidy?
    • foreign worker in urban labor market?

Sep20_L11_resilience of agriculture (diversification)

  • importance of local crop price; as a signal to the farmers to plant more paddy; since the demand is quite inelastic higher price bring more revenue to the sector
  • Baumal-Bowen cost disease hypothesis
    • the rise of salaries in jobs that have experienced no increase of labor productivity, in response to rising salaries in other jobs that have experienced the labor productivity growth
  • export diversification: new product like sugar (second to Brasil only) and casaava
    • palm oil is not a good choice to diversify from rubber
  • rice market share drop from 25% to 20% from 2000-2017
  • rubber tree takes 5 years for the first tapping, maintains profitable for 25 years; less inelastic to price
    • nature rubber is subsitute to synthesized rubber from oil
    • export to the biggest market US and CN didnt grow
  • reading: dynamism of the thai agriculture
    • the reasons why productivity grown in agri sector is less than others
      • investment mostly in menufacturing and service sectors
    • success in disverse the agri products and adding new items
    • future in export market and processed food

Sep25_L12_boom and bust in commodity market

  • Prebisch-Singer hypothesis
  • boom in 2008, drought in China and India; speculation of food shortage
  • main crops in Thai: rice(30%), veggie&fruit, rubber, sugarcane, maize
  • 2016, both price and output decline
    • farmers in debt since 2013
  • policy intervention's lagging effect. may not so effective
  • continuing subsidy in thailand
    • guaranteed price
    • direct transfer
    • incentive to delay the supply
    • rice morgage scheme: provide option for farmers for a set price before the harvest
    • 2011 Yinluck susidy scheme 689M baht; 15000baht/rai
      • unlimit amount
      • unlimit type
    • cassava

Sep27_L13_menufacturing

  • FDI is a important factor

  • supply depends on FDI

  • demand depend on international demand, foreign price, exchange rate

  • major sectors (textile, electronics, vehicles, food)

  • categorize according to market:

    • import: petroleum, beer, passenger car
    • in between: pick-up car, garment, weaving
    • export: HDD, IC, leather, seafood

  • productivity growth as an indicator of competitiveness

    • Krugman argument:
      • international trade is not zero sum
      • trade surplus may be a sign of economic weakness
      • welfare matter than competitiveness
    • Jeffrey Sachs
      • correlation between competitiveness and GDP growth

  • thailand strong in macroeconomic environment (exchange rate, inflation)

  • BCG (Boston consulting group) model of competitiveness

    • gaining world market share
    • growing sector (high income elasticity of export demand)

  • reading: "Is there an "East Asian Education Model"?

    • socical pressure put higher PISA score
    • confucious value a significant explain variable

Oct-09_L14_textile industry

  • in 2007 the industry employ a million people (labor extensive), in 2016 only a half the employment
  • decling in share of manufacturing, more in textile, less in clothing
  • lose EU's geneal system preference in 2003
  • vertical integration helps the firm to adjust their supply quickly
  • Revealed Comparative Advantage (RCA/Balassa index) : local industry share in export/ global industry share in the export
  • electronic, car, textile, processed food are the main RCAs in thailand
  • no FDI and no rising in competitiveness

Oct-09_L15_processed food_fish, shrimp, chicken, pork, pineapple

  • labor extensive, less reliance on local raw material
  • Crustacean: shrimp (Thai union company), crab
  • Mollusca: shellfish, squid
  • shrimp industry 2012 hit by diseases
  • the industry goes into tracebility and hygiene
  • food safety standard could be a trade barrier
  • bigger firm is in better position to get the connection and quality assurance to penetrate into global market
  • as the quality of food increase, ST the rising supply cost reduce profit, but LT the demand will increase and less elasticity.

Oct-11_L16_electronic industry

  • sensitive to business cycle
  • trade fragmentation - split the production chain
  • as a price taker
  • barriers
    • RoHS
  • in transition to innovation area
    • need to invest more on engineering eduction
  • effect of strtegic policy is usually overestimated
  • reading: rise and fall of export-oriented industries
    • good year in 1986-1995, down in 1997 2009 crisis but rebound fast, flattened after 2013
    • thailand's position:
      • either primary goods or small share in the global market. No market power
      • low labor cost area is gone
      • heavy depend on China
    • compare industries
      • automobile
        • capital intensive
        • rising star
        • sensitive to business cycle
      • textile
        • declining market share
        • high volatility growth
      • electronic
        • major player in export industry
        • rely on import intermediate goods
      • processed food
        • rely on local raw material
        • less volitility growth
        • labor intensive
        • potential of diversification

Oct-16_L17_car industry (a durable good)

  • diverse export market while one-ton truck is popular in AU
  • facing challenges from china and india
  • histroically from import sustitution (high tariff), local content requirement, lifted regulation, to export orientation (during 97 financial crisis and baht depreciation)
  • after 1999, protect are all gone
  • role of FDI
  • RCA: revealed comparative advantage (specialization index): index bigger than one means spciality industry
  • hirchman theory of development: backward linkage, forward linkage as upstrem and downstream industries
  • thailand's advantage now: no national car, open market, scale economics with fiscal incentive
  • new strategy for eco car, little progress by 2016

Oct-16_L18_trade and FDI

  • views on trade
    • hamper: export only primary goods
    • handmaiden: increase quality of investment thus have decreasing marginal benefit
    • engine: technology transfer
  • trend
    • trade network: intermediate goods dominate import/output and business cycles sychronize over countries
    • since 2013, export drop (China demand factor)
    • in 21st century, the biggest trading partner is China

Oct18_L19_tourism

  • labor insentive; related to cultural capital stocks

  • shock and recovery

    • with tsummim khao lak region's 80% hotel room was gone
      • liquidity provided by the gov
    • security
      • political shock: airport shutdown (10 days = 290 billion)
      • terrorism
    • pandemic
    • economic

  • china factor

Oct25_L20_regional integration

  • indicators: FDI share, export share
  • GMS: great mekong subregion
  • gravity model
    • trade is a function of two countries' GDP and their distances
  • Krugman's theory about consumpation variey in utility
    • car trade between developed country
    • apples from different countries
    • four proposition
      • agglomeration (larger market attract )
      • transportation
      • economics of scale
      • home market effect
  • EPA (economic partnership agreement)
  • Trade diversion: trade is diverted from a more efficient exporter towards a less efficient one by the formation of a free trade agreement or a customs union. Total cost of good becomes cheaper when trading within the agreement because of the low tariff. This is as compared to trading with countries outside the agreement with lower cost goods but higher tariff.
  • The related term Trade creation is when the formation of a trade agreement between countries decreases of price of the goods for more consumers, and therefore increases overall trade. In this case the more efficient producer with the agreement increases trade.
  • RCEP has no environment and labor standard provisions, unlike TPP

Oct30_L21_china factor

  • indonesia is big in population so have bigger local market base. Thus their volatility in GDP growth is smaller
  • rebalance of trade defecit needs change saving rate and/or exchange rate
  • China is taking actions with rebalancing, with gov policies, muturing economy, robust growth in EU and US
  • different types of capital flow
    • FDI is the most stable one, depend on pull factor such as GDP growth, business environment
    • portofolio (debt & equity) is the most volitile which heavily depends on the push factor US rates, exchange rate
    • other flows are bank, trade credit, gov, central bank which depend on both push and pull factors
  • reading: chapter 10
    • as growth locomotive for the world from 1990-2015
    • china's impact on Thailand
      • transmission channels
        • trade volumn (China represents 10% thailand export but also impact through the region network)
          • rubber, wood, vegetables are the revealed comparative advantage items
        • exchange rate & price
          • inflation in China affect Thailand through imported vegetables and fruits
        • FDI
      • business cycle, inflation, rates, stock market syncronization with China (not US) due to fragmentation-based specialization
      • China demand on Thailand increase when GDP up, EXrate depreciation, and import price drop; elasticity bigger than US & JP (especially sensitive in price and EXrate)
      • tourism
        • bangkok has its international attraction
        • close to China
        • relatively cheap
        • exchange rate
    • Japan and thailand local product have high substitute efx due to Japan's factory in thailand
    • strategy change from export lead to local consumption
  • reading: the ASEAN business cycle influenced by China
    • highly diff ASEAN countries shows growth rate convergence
    • factor of influence: trade exposure, growth correlation with China import
    • ASEAN need more intra-region trade and infrastructure investment to offset China slowdown

Oct30_L22_exchange rate_absent (decided by internal, external, expectation)

  • how much did weak currency help export
  • ineffectiveness of forex control
  • consequence of 2006 capital control
  • reading: chapter 7
    • real interest rate and risk are correlated so stable rate and exchange rate are preferred
    • former fixed rate contributed to stable price and trade growth
    • thai's menufacturing is with low value added compared to agriculture goods and processed food insudtry
  • reading : Why Thai baht performed well while other Asian currencies slumped?
    • ind and phi currency drop in first 2 quarter 2018
      • negative CA(both), relatively high external debt(ind), not follow US's rate(ph)
    • th and my currency strengthen in first 2 quarter 2018
      • constant CA surplus and low inflation
      • less impact by the trade war
      • surpuls from tourism(th)

Nov01_L23_financial sector

  • reading: chapter 4 banking sector
    • in thailand, bank are the main intermediary
    • banking industry shows concentration, and foreign captial coming in after 1997
    • change in output level leads change in bank credit
  • reading: chapter 5 stock martket
    • financial market connect real and monetary sectors through rate, stock price
    • as a high risk high return alternative to bank deposit and bond
    • easy to be affected by internatinoal shocks
    • market capitalization rose from 30% GDP in 2000 to 100% in 2014
    • become route of direct investment financing
    • US stock granger cause thai stock
    • thai stock granger cause exchange rate and menufacturing output and M2(intervention in exchange rate)
    • high foreign portfolio cause baht appreciation, which weaken export
    • central bank's monetary effort to curb stock market affect real economoy through consumption and inverstment
    • Thailand's stock markets are gaining correlation with China and other ASEAN market
    • bond's rate reflect each countries' risk, thus are less correlated among countries, declining correlation may caused by local politics

Nov06_L24_monetary policy

  • objective: make risk-taking and saving (investment) profitable, as a stabilizer towards long term trend
  • CB set core inflation target at 0~3.5%
  • CB balance sheet
    • count #1: Monetary base = foreign exchange market (NFA) +Claims of gov (CoG) + claims of financial institution (CoF)
    • count #2: currency + commercial bank's reserve
  • transmission channel
    • through banks's reserve ratio, lending rate, borrowing rate
  • reading: chapter 8
    • purpose: reduce investment fluctuatuion by controlling the cost and quantity of credit available to investors
    • long term growth and monetary aggregates are correlated; M2 growth leads output growth; M2 shock leads output fluctuation
    • BOT rate reflect inflation, growth, and REER
    • lack of competition in the credit market makes lend-rent gap constant over time
    • FED rate lead BOT rate
    • SET lead construction activities

Nov13_L25_fiscal policy

  • counter cyclical fiscal policy seen in Thailand
  • saudi arabia is the highest spender on military in terms of % GDP, and third in terms of value
  • spending wisely
    • timing
    • target
    • counter-cyclical
    • sustainability
  • reading: ch 11

Nov15_military

  • peace dividend: when not in war, no need to spend lot
  • political business cycle: spend according to the election schedule
  • lack of funding in military may cause a coup; military budget without examine cause fraud easily

Nov20_poverty

  • rural poverty exist though overall poverty in thailand drop
  • price of crops are often correlated, a downward shock impact on the poor is bigger
  • inclusive growth may not happen when labor market is restricted
  • invisible foot: the competetion pressure of current firm makes them making innovation

Nov20_Inequality

  • under globalzation process
  • gini coeficient used gross income, not net income
  • silver bullet: simple soultion to difficult problem
  • high correlation to rural poverty and asset inequality and capital/labor ratio
  • when terms of trade for agriculture good drop, farmer income worsen
  • underemployment: work less 34 hours per week

Nov29_L29_urbanization

  • Retail gravitation: people are attractive to the biggest mall
  • land price rise before condo price
  • trade off between accessibility and rent
  • agglomeration: productivity higher when firm is next to another
  • non-standarized industry benefit from urbanization

Nov29_L30_sustainable

  • fast urbanization means less plan
  • bangkok is the most primate city(huge compare to second largest) on Earth, but it is declining
    • agglomeration of economics
    • 33% GDP
  • sustainable
    • declining pop density
    • improving inequility
    • improving environment (grenn space still scarce)
  • reading: ch12_poverty and inequality

extra reading

  • 2018 nobel prize
    • Romer
      • economic growth with innovation
      • endogeneous grwoth model: market generate new ideas
      • problem with cross countries comparasion
    • Nordhaus
      • economic growth with natural resources
      • emission model suggest target on less 2 degree temp rise
      • problem with uncertainty
  • The path to economic development is growing more treacherous (africa faces harder developing path)
    • convergence seen from late 1990 but slowed
    • supply chain menufacturing makes growth in plact with cheap labor and proximation to big market
    • developing countries in asia and europe is good, but not LA and afirca (wages not low enough compared to vn, bangladesh)
    • african govenment are generally weaker, bad for FDI and growth
  • Vietnam (and other SEA countries) emerges as key beneficiary of trade war
    • company consider moving outside US and CN
    • US company mixed feeling at trade war while CN think it speed up transformation and upgrading
  • US china trade war
    • issues: IP, trade deficit
    • scale: ~100 billion USD
    • affect: targeted industry, consumer, companies w/ supply chain as losers; US steel and aluminum company as winners
    • winners; asia country with have a substitute efx but may have negative wealth efx
  • Italian
    • bring budget that may have 3% deficit
    • bad economic needs boost
    • EU could ease its fiscal policy altogether to help italy
    • debt exchange could relieve the political pressure
  • India economy
    • indirect tax reform into GST, disturb bussiness in ST
    • 86% rupee withdrawl to fight black money but in vein
    • fex drop is due to trade war(following yuan drop), rising energy price, rising FED rate(KA deficit),CA deficit
    • indian central bank start to rise rate, but gov want the opposite
  • Thailand's new year gift
    • 39 billion baht to 15m (20% pop) poor people include electricity, water, money transfer,rent, and travel to hospital
    • one million house project 3% interest rate for housing loan, 1.25% for development
  • reading: asia is not immune to emerging market woe
    • Asia's currency fall, or stock price fall while economy is healthy
    • ind and in's currency fall is caused by:
      • higher oil price
      • tighten FED rate
      • fear of lower exchange rate would bring burden foreign debt
      • fear of expectation
    • conclusion: asia suffer more when US doing good and tighen the rate

Glossary

TOT: the amount of import goods an economy can purchase per unit of export goods. An improvement of a nation's terms of trade benefits that country in the sense that it can buy more imports for any given level of exports.

current account = (X-M) + NY + NCT; export, import, net income abroad, net current transfer

capital account = net foreign own domestic asseat - net domestic own foreign asseat

balance of payment = current account + capital account

imbalanced adjusted growth

non-performing loans

not repay the debt in 3 monthes

Original sin

is a term in economics literature, proposed by Barry Eichengreen, Ricardo Hausmann, and Ugo Panizza in a series of papers to refer to a situation in which "most countries are not able to borrow abroad in their domestic currency."

pigou effect

consumption is positive correlated with real income

Debt deflation

is a theory that recessions and depressions are due to the overall level of debt rising in real value because of deflation, causing people to default on their consumer loans and mortgages. Bank assets fall because of the defaults and because the value of their collateral falls, leading to a surge in bank insolvencies, a reduction in lending and by extension, a reduction in spending: the credit cycle is the cause of the economic cycle.

solvency

the possession of assets in excess of liabilities; ability to pay one's debts.

okun gap: price inablity cause recession

okun's law: growth has linear relation to employment rate

harberger's triangles: price intervention cause inefficiency

Tobin's q:

EER: effective exchange rate: weight average of exchange rates among currencies

dutch disease: The surge in capital flows led to the so-called “Dutch disease” which results in the appreciation of the real exchange rate and a consequent reduction in external competitiveness. could be proxied by the price ratio of export to property.

thai politics history since 1932

  • Thamon 64-74
  • Pramojs 75-76
  • Tinsulanonda 80-88
  • democracy 90s
  • 1992 election Chuan Leekpai, a leader of the Democrat Party, became prime minister at the head of a five-party coalition.
  • Chuan dissolved parliament in May 1995
  • Banharn Silpa-archa, Chart Thai Party won the largest number of parliamentary seats in the subsequent election.
  • 1996, Chavalit Youngchaiyudh formed a coalition government and became prime minister. - Chuan Leekpai became PM again in 1997 crisis.
  • 2001 Thaksin Shinawatra Thai Rak Thai Party (TRT)
  • 2005 Thai Rak Thai Party won majority
  • 2006 coup Sonthi Boonyaratglin after protest organised by People's Alliance for Democracy (PAD), a large group of middle class Thais and a coalition of anti-Thaksin protesters led by Sonthi Limthongkul. boycotted and annoyed invalid election
  • 2008 People's Power Party (PPP), or Thaksin's proxy party won election again
    • Samak Sundaravej, Somchai Wongsawat, PPP dissolved, Abhisit Vejjajiva's democracy party in
  • 2009 to 2010 protests continue
  • 2011 (flood) election, Chalerm Yubamrung
  • 2013 Yinluck
  • 2014 coup Prayut Chan-o-cha
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